RIEB Discussion Paper Series No.2023-08

Title

A Two Country Model of Trade with International Borrowing and Lending

Abstract

We investigate the properties of a two-country dynamic Heckscher-Ohlin model that allows international borrowing and lending. As is well known, international trade patterns become undecidable when international borrowing and lending is allowed. To avoid this, we assume a consumable capital good to be nontradable. A key feature of our model is the existence of a continuum of steady state levels of capital stocks, which enables us to examine how the initial amount of physical capital and assets in each country affects the amount of capital and assets in the steady state.

Keywords

Two-country model; International borrowing and lending; Continuum of steady states

JEL Classification

E13, E21, F11

Inquiries

Kazumichi IWASA
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059

Kazuo NISHIMURA
Research Institute for Economics and Business Administration
Center for Computational Social Science
Kobe University